High Rental Yields in Spain

Pre pandemic, Spain’s tourism industry was on something of a roll.  At the peak before the 2008 global recession the all-time record in one year was 59 million overseas visitors.  At that time Spain was the 3rd most visited country in the world, behind France and the United States. A decade later Spain overtook the U.S. when 82.3m tourists visited in 2017, and has held on to 2nd place since then. In 2019, the last full year before Covid-19 arrived, another all-time high was recorded with 83.7 million international visitors. Post-pandemic numbers are still below the the pre-pandemic level but heading in the right direction; 71.6m in 2022 and I predict 2023 overseas visitor numbers will be right back at 2019 levels. The outlook for the higher rental yields that can be achieved in Spain to continue is good.

There are three groups of overseas property owners in Spain when it comes to rentals. Some wouldn’t dream of it. Others are part-time landlords, not bothered about yields but  looking to cover running costs and maintenance. Their use takes precedence and they only rent it out when they are away.  The third group does it the other way round, only using the property if it isn’t let out and the principle reason for their purchase was to generate income, at least in the short to medium term. In my experience, this group is looking to a future in which they plan to spend a significant part of each year in Spain but in the meantime, they are still working, have school-age children and limited holiday time. For them, it makes sense to buy now and generate income. 

Government tourism figures give the breakdown of where all these millions of visitors stay: about 65% in hotels, 35% somewhere else.  Clearly some of the ‘somewhere else’ group will own their own property or stay with family or friends.  However, that still leaves a serious number looking for non-hotel accommodation. Hence the high rental yields currently achievable in Spain but it is all about the right kind of property in the right location.

Across the board, owners of top-quality properties in prime locations all along Spain’s Mediterranean coastline have put up the ‘No vacancy’ signs in high season in recent years.  With all high season weeks taken they can expect a gross yield of something in the region of 5%±. The key to achieving an even higher yield is to focus on a mix of short term holiday lets and some longer lets at other times of the year in the few areas with a genuine 12-month season.

In the case of Spain that means heading for the mildest winter climate and golf.  And I don’t mean areas with one or two golf courses within 30 minutes, I mean the area that attracts more than 500,000 golfers between October and June, that is the Costa del Sol, which also markets itself as the Costa del Golf. Then, for winter warmth, there are two areas with a micro-climate on the Mediterranean coast in Andalucía; one, to the west of Málaga city is centred on Marbella and the other, to the east between Nerja and Salobreña on the Costa Tropical. Both these areas are located on south-facing, sheltered bays with mountains behind and you can expect winter daytime temperatures to be in the region of 5ºC - 8ºC higher than the Atlantic coast and other parts of the Mediterranean coast. The combination of golf and winter warmth is essential for the highest gross yields.

In the hierarchy of yields, luxury detached houses with swimming pools, in prime locations beachside or on a top-rated golf course do best, 8% - 10%+ gross yield is achievable providing the property is available without restrictions for all high season weeks and throughout the year.  Of course, there are always exceptions and a luxurious country estate can compete, but perhaps 1% - 2% lower.  Next in line are beachside townhouses with private swimming pools, coming in at 7% - 8% and finally, beachside apartments in the region of 5% - 6%. As regards townhouses and apartments they can also do well on the best golf courses but I would put gross yields 1% lower than beachside properties in both cases. However, in all cases it goes without saying that free wifi, high quality interiors and equipment are considered standard requirements by tenants. In addition, gyms, heated pools and walking distance to lots of amenities and the beach are also highly valued by renters.

In general, renting to the holiday market generates a higher yield that a long-term let, in the region of 2% higher. Once again though, there are always exceptions to the rule and currently, a former client of The Property Finders is generating 8% gross yield for a one year let of his beachside detached house, slightly lower than for short term but close enough.

With demand outstripping supply of quality rental properties in prime locations yields should hold up even though property prices are rising because rental prices are also definitely on the increase.  I thought yields might be squeezed somewhat but I now think it’s unlikely. Weekly rates in high season for top quality houses in a prime location of between €10,000 and €20,000 are not unusual in the current market. In addition, as Covid-19 becomes a distant memory I see demand only going one way and that’s up.

A good property should see regular repeat business.  Here are two examples of properties we found for clients of The Property Finders that are producing rental income above expectations: an exceptional country estate in Gaucín  and a beachside, detached villa. 

When I am working for a client whose brief requires reliable rental income I target certain areas and ignore others, I look for a type of property and reject others.  Get the location wrong, even by just a few kms and income will fall.  As well as as pinpointing the right location in a particular area you need to be in the right region because some have legislated against short term holiday lettings, pressured by the powerful hotel lobby and disgruntled locals.  For more information about the regulations check out my blogs about Mallorca tourist rentals and Barcelona & Málaga tourist rentals.